SCAM

Company Overview
y Citibank, a major international bank, is the

consumer banking arm of financial services giant Citigroup.

y Citibank has retail banking operations in more than

100 countries and territories around the world

y In addition to the standard banking transactions,

Citibank offers insurance, credit card and investment products.

INTRODUCTION
y Multi-Crore scandal which was unearthed at the Gurgaon

Branch of Citibank. y Shivraj Puri, a senior relationship manager at the DLF Phase II branch of the bank and three others were accused of diverting hundreds of crores of rupees from the accounts of a clutch of high-net-worth individual and corporate clients over the last 12-14 months y He had allegedly sold investment products to high net worth clients claiming that they would generate unusually high returns.

y The investors include individuals as well as corporates and

most of the corporates, which invested the money with Shivraj Puri, belonged to the Hero group. y Of Rs.300 crore involved in the fraud, Rs.200 crore belong to the corporates and Rs.100 crore to individuals. y He had created accounts for three other persons Premnath, Sheela and Deeksha in the same bank. y Then he issued a circular on a forged letter pad of Securities and Exchange Board of India (SEBI) and asked some customers to deposit the funds in these three fake accounts.

y He collected authorization from the clients to use

funds in his account to invest in the stock market. y Then, he diverted the funds from their accounts to his familys accounts and then put all these funds into the stock markets through various brokerage firms.

LEGAL ASPECTS OF THE CITIBANK SCAM

y As soon as the scam was revealed, Citibank suspended Puri and

y y

y y

reported the alleged fraud to the banking and capital markets regulator. Initially the scam was registered a case of cheating, fraud and criminal conspiracy against Shivraj Puri. Gurgaon Police registered a case under the section 420, 467, 471 and 120B of Indian Penal Code and alerted other agencies to seize his accounts. Filed a case of criminal breach of trust, falsification of accounts, cheating and criminal conspiracy against all top bosses of the bank. The Gurgaon Police sought Reserve Bank of Indias (RBI) assistance to ascertain whether systemic failures within the bank had perpetrated the fraud or not.

VIOLATED LAWS
y Section 120B : Punishment for criminal conspiracy y Section 477A : Falsification of accounts

: Using as genuine a forged document. y Section 467 : Forgery of valuable security, will, etc. y Section 420 : Cheating and dishonestly inducing delivery of property y Section 409 : Criminal breach of trust by public servant, or by banker, merchant or agent
y Section 471

OFFENSES AS PER IPC

SECTION

OFFENSE

PUNISHMENT

COGNIZ ABILITY Cognizable

BAILA- COURT OF BILITY TRIAL Nonbailable Magistrate of First Class

409

420

Criminal Breach of trust by public servant or banker, merchant or agent,etc Cheating or thereby dishonestly inducing delivery of property or making alteration or Destruction of a valuable Security Falsification of Errors

Imprisonment for life, or imprisonment for 10 years and fine Imprisonment for 7 years and fine

Cognizable

NonBailable

Magistrate of First Class

477A

Imprisonment for 7 years or fine or both Imprisonment for life or for 10 years, with a fine

Noncognizable

Bailable

Magistrate of First Class

467

Forgery of valuable security, will, etc

Cognizable

Bailable

Magistrate of First Class

SECTI ON 120B

OFFENCE 1.Criminal conspiracy to commit an offense punishable with imprisonment for life or rigorous imprisonment for a term of 2 years or upward 2.Any other criminal Conspiracy Using as genuine a forged Document

PUNISHMENT Same as for the abetment of offense, which is the object of conspiracy.

COGNIZABLITY BAILABILITY According to the offense which is the object of conspiracy is cognizable or not According to the offense which is the object of conspiracy is bailable or not

COURT OF TRIAL Court by which abetment of offense as the object of conspiracy is triable.

471

Imprisonment for Non- cognizable 6 months or fine or both Imprisonment for Cognizable a term which may extend to two years, or with fine, or with both.

Bailable

Magistrate of First Class Magistrate of First Class

Bailable

THE PREVENTION OF MONEY LAUNDERING ACT

y The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal

framework put in place by India to combat money laundering y The PMLA and rules notified there under impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information to FIU-IND. PMLA defines money laundering offence and provides for the freezing, seizure and confiscation of the proceeds of crime. y The Prevention of Money Laundering Act, 2002 defines offence of money laundering as under: "Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering. y Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees: y Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words "which may extend to seven years", the words "which may extend to ten years" had been substituted."

CYBER CRIMES
Three categories:
y Against Property Financial crimes cheating on-

line illegal funds transfer. y Against Persons On-line harassment, Cyber Stalking, Obscenity. y Against Nations Cyber Terrorism Damaging critical information and Infrastructures

FRAUD AT CITIBANK
y IPC SECTIONS: 409,420,477A,120B,467,471 y Complainant : Sanjay Aggarwal, MD, Helion Advisors y Accused :- Sivraj Puri, Senior Relationship Manager, Citibank y Co-Accused:- Vikram Pandit (CEO of the Citibank )and William R Rhodes(chairman ) y Property involved:- Rs. 300 Crores y Brief Facts:- The accused was working at CitiBank. By virtue of his post, he influenced a number of individuals and corporates to transfer funds from their accounts to some faked accounts without the knowledge of the bank and as well as its clients and invested these funds for the wrongful gain to himself. He thus cheated the bank and its clients and committed CBT in respect of Rs. 3000 Crores

What can be done to prevent the frauds and minimize their impact?

y Fraud Risk Assessment Audit/Survey y Putting systems in place: Audit, Policy to Deal with frauds, Sensitizing

the executives, Employee contracts. y Early steps when a fraud/irregularity is reported: fact finding, criminal and civil action. y Supporting prosecution- taking it out to logical conclusion in courts

y reputation risk and fiduciary risk

CONCLUSION
y In the case of the Citibank Scam, the authorities were

quick to suspend him and submit the news and details to the investigating officers. y There was a serious misconduct from the side of the accused by distorting the accounts. y Suitable punishment has to be given by the Judiciary to all the people behind this scam since this case can be a precedent to many corporate scam cases which may occur in the future.

THANK YOU..